Archive for December, 2009

San Francisco: Selfishness Writ Large
December 22, 2009 | From theTrumpet.com
Moral breakdown is wrecking what should be a bastion of prosperity.

San Francisco is a leader. It leads the country in homosexual marriage. Its representatives lead the charge to return America’s troops from Iraq. Its businesses pay the highest minimum wages in the country. And San Francisco spends more money per capita on homeless people and social services than almost every other city in the nation.

But San Francisco is leading the nation in one other way too—down the economic sinkhole. One of America’s most beautiful cities is in danger of becoming the next Detroit.

“It’s time to face the facts,” laments the San Francisco Weekly. “San Francisco is spectacularly mismanaged and arguably the worst-run big city in America.”

Urbanologist Joel Kotkin agrees: “Even other liberal places wouldn’t put up with the degree of dysfunction they have in San Francisco. In Houston, the exact opposite of San Francisco, I assume you’d get shot.”

San Francisco is a city verging on an economic decline as dramatic as its moral decline. The warning for America is that even the nation’s richest cities are on the edge of disintegration.

The biggest difference between San Francisco and today’s Detroit is that the Californian city still has the facade of wealth. But it is a debt-based veneer that is becoming more transparent by the week.

San Francisco city planners boast an astonishing $6.6 billion budget—more than twice that of Detroit, despite the fact that Detroit’s population is 25 percent greater. But even though San Francisco rakes in a gargantuan $33,000 per family of four each year in revenue, it has seemingly unsolvable spending problems.

Just like Detroit a decade ago, years of mismanagement and corruption are about to tip the Golden Gate city off the financial bridge.

This past year, the mayor’s office was forced to implement some of the deepest cuts to spending in the city’s history. Due to a massive revenue shortfall, $575 million had to be chopped or raised in taxes to balance the budget. Since the city is dominated by unions and self-interest groups, that meant that public health services and other non-union sectors took the biggest whacks.

It wasn’t nearly enough.

“We were cut to the bone,” said Board of Supervisors President David Chiu. “At this point, we don’t have anything [left] to cut but bone.”

Sadly, for the City by the Bay, the bones—along with a lot of gristle and sinew—will have to go too, and in dramatic fashion.

San Francisco’s projected budget deficit for the coming fiscal year is estimated to be another $500 million. “It is going to be the most challenging budget situation that anyone has ever seen in San Francisco,” says Chiu.

If you thought the 1,600 proposed job cuts were bad, wait until next year.

Already plagued by plunging real-estate values, city tax collections look set to fall even further.

This year, over 4,000 property owners, representing $25 billion worth of real estate, have filed appeals against the city concerning property valuations and taxes. Last year at this time there were only 350 challenges, representing $2 billion in assets. If these appeals are successful—and with property prices still falling, they probably should be—the hit to city finances could be huge.

And that doesn’t take into account the looming commercial real-estate collapse. In a dramatic sign of what is headed San Francisco’s way, investment bank Morgan Stanley decided to pull the same trick that millions of homeowners across America are doing and strategically default on five of its high-end office buildings—even though it can afford the payments. It is mailing back the keys to $8 billion worth of devaluing downtown tower space.

The city has already implemented a program to mask the growing glut of empty commercial buildings. Artists will be given small grants to showcase their wares in vacant store windows.

In San Francisco, the employment situation does not look too hopeful either. Although the city’s approximately 10 percent unemployment rate is a far cry from Detroit’s 22 percent, some worrying trends are developing. Like skyrocketing social spending.

The city is becoming a kind of Rome before the fall where rich elite spend ever increasing amounts on bread and circuses to pacify the impoverished mobs. San Francisco pays more per capita combating homelessness and on social services than any comparable city in the U.S. Yet the ranks of the homeless continue to grow.

San Francisco, of all cities, should not be facing such dire economic conditions.

Blessed with one of the most favorable climates in the world, set against a beautiful coastal backdrop, and enjoying one of the best natural harbors in the world, San Francisco should be a bastion of prosperity. Throw in its proximity to the tech-heavy Silicon valley, its status as a major tourist destination, its large universities, and you would never guess that this city could have such economic problems.

Although national economic conditions have conspired to knock San Francisco, it is the corruption, greed, incompetence, and general condition of selfishness that have set the City by the Bay up for what could be a spectacular fall.

San Francisco has become a case study of how special interest groups can wreck even the most prosperous city. No one fights for the good of the city. Each fights for his own good.

The city’s out-of-control health-care and retirement spending is a case in point.

Here is the catastrophe the city faces. In 1999, the city contributed $300,000 to retirement plans. This year, the city will contribute $200.5 million! Four years from now, the city will pay a whopping $492 million.

Total benefit costs paid by the city in 1999 were $384 million. This year, San Francisco paid $890 million. In 2013, it will have to pay $1.4 billion!

These numbers are simple mathematics. The city knows how many employees are going to retire. The city knows when the employees will be forced into retirement. And the city even knows how much money it has promised to pay.

What no one knows is where the money is going to come from.

Corrupt politicians have sold the city’s finances and its future to powerful lobbies. They knew what the eventual bills could amount to, but they went ahead anyway. Voters must be placated, or reelections won’t result. “This is a union town,” warned a transit worker when the city attempted to fire certain employees for incompetence. “[A]nd we expect it to stay this way.”

Everyone is beholden to someone. And it is painfully obvious every time a labor contract goes up for negotiation. Public finances are sacrificed to placate special interest groups. It has become common practice for the government to accept prolific future salary increases as long as the unions agree to a very little or small increase for the first year or two. This allows both the city and the unions to save face. Since the Board of Supervisors only examines the impact on the budget on a yearly basis, it is easy to sneak the new contracts through. But it is in the future years—and under someone else’s watch, they hope—that the city finances take the hit.

City employees are also among the most richly paid in the country. For example, entry-level police officers receive a base salary of anywhere between $75,868 to $101,556—depending on who they know at the time of hiring. Entry-level firefighters without paramedic training receive between $70,486 and $98,670. And don’t forget that these positions also include tens of thousands of dollars in additional benefits. What other industry can you enter with no experience and get paid a six-figure salary?

And to make matters more costly for the city, employees regularly engage in what has become known as retirement spiking. Since city laws calculate retirees’ pensions based upon their last year salary, government employees game the system by giving each other big raises in their final year of service. The result is that labor contracts turn into hidden bombs just waiting to detonate in the city’s face.

Only in a union town. But as Detroit knows, eventually somebody pays the price.

Writing in the San Francisco Weekly, Benjamin Wachs and Joe Eskaenazi describe how bad the Recreation and Park Department has become. An internal audit found that rec centers frequently didn’t open because staff simply didn’t show up. The department had no process to do anything about it. Groundskeepers too seem to be able to arbitrarily decide when and where they will show up to work.

Imagine running your business like this.

In the Marina’s Yacht Harbor, a report by the city’s budget analyst found massive fiscal mismanagement. The report suggested that perhaps so much money would not have gone missing if the city had installed a cash register.

Yet the city cannot fire anyone due to union protections. When the city proposed reforms to make the transit system run on time and on budget, the union slammed on the brakes. According to contract rules, the union only allowed 1.5 percent of its employees to be fired for incompetence each year. When it discovered that the city wanted to raise the limit, the union threatened enough retaliation to kill the reforms. So everyone has to put up with off-schedule trains and more expensive fares.

Wachs and Eskaenazi also describe how the city has almost total lack of accountability. “[M]illions of taxpayer dollars are wasted on good ideas that fail for stupid reasons, and stupid ideas that fail for good reasons, and hardly anyone is taken to task.”

It “is a mecca for people in search of a government handout that they can hand out,” they write. Hundreds of millions are spent on social programs that no one is required to demonstrate yield any results. And the money disappears.

San Francisco is a city in serious trouble. But sadly, it is not alone. The same economic problems plaguing San Francisco are hitting many U.S. cities, and are set to get much worse. San Francisco’s moral slide, however, is just more obvious.

It is impossible to prosper for long once moral breakdown becomes endemic. When the majority is focused on getting and the tiny minority on giving and serving, society begins to fall apart. It is an economic law that morals and prosperity are deeply entwined. If there is anything America should learn from the current recession it is that economic breakdown follows moral breakdown.

San Francisco might not like it, but it all gets back to the spirit of the Ten Commandments. Break these laws, and they will eventually break you. •